The staff level agreement with the International Monetary Fund (IMF) had sent a wave of jubilation throughout the country.
The Pakistan Stock Exchange did roaring business, witnessing the highest single-day gain with the benchmark KSE-100 index rising more than 2,400 points.
The index closed at 43,899 points, having increased to 2,414 points at 43,867.
“Historic day-on-day gain witnessed at PSX today with KSE-100 increasing by 2,446 points and closing at a 14 month-high,” said Arif Habib Ltd.
A similar trend was seen with the Pakistani rupee, which gained over Rs10 against the US dollar in the interbank market on the first trading session following Eid holidays.
According to the State Bank of Pakistan (SBP), the rupee closed at Rs275.44 per dollar as against Rs285.99 on June 27 before the markets closed for Eid and bank holidays.
However, all these gains were short-lived. Both the stock market and the rupee lost steam.
The next day the currency depreciated by Rs2.56 against the dollar in the interbank market.
The stock exchange also faltered the following day.
According to analysts, there was uncertainty over the prevailing positive sentiments due to the precarious situation of the foreign exchange reserves at a time when debt servicing required $25 billion in the fiscal year 2023-24.
Even two global rating agencies – Moody’s Investors Service and Fitch Ratings – have warned that Pakistan would require more funds than it has received from the IMF to meet its debt maturities and finance economic recovery.
Moody’s Investors Service and Fitch Ratings said Pakistan had to repay $25 billion in the current fiscal year to meet its debt obligations, which were about seven times Pakistan’s foreign exchange reserves.
There is no good news for the rupee ieither. As per the Trading Economics global macro models and analysts’ expectations, the currency is expected to trade at Rs293.52 by the end of this quarter, and it expected to devalue further to Rs317.29 in the next one year.
In its report titled ‘Pakistan Viewpoint – Running out of ‘orthodox’ options’, the Bank of America Securities has predicted that Pakistan’s currency could devalue to Rs340 against the dollar due to high domestic borrowing, substantial interest payments, and the need to restructure unsustainable debt in 2024 and 2025.
It also expects inflation to remain high over the next few years and estimates Pakistan’s State Bank’s key policy rate to rise to 25 per cent in the year, compared to the current rate of 22 per cent.
The report says that although the Pakistani rupee might have already reached its fair value at Rs286 against the dollar, high domestic borrowing of Rs2.5 trillion could weaken it by another 15-25pc to around Rs340.
It’s a tough road ahead for Pakistan it seems, rather a long road. The country is banking on inflows from other money lenders and foreign countries to keep its economy afloat and pay off or reschedule the loans.
We need both short term and long term programmes to enhance export, reduce debt and set the engine of economy in motion.